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Bond shoppers having a hard time finding bargains ought to keep an eye on the muni market this month.

March has been the worst-performing month for municipal bonds for years, producing positive returns only five times since 1990. Investors often sell munis ahead of April's tax deadline, while March sees comparatively few maturing bonds that generate proceeds in need of reinvestment. Hence, the typical slump.

Right on cue, it's happening again. The market has sagged thus far this month, with long-dated yields in particular climbing steadily, aided by concurrent weakness in Treasuries. Muni mutual funds and exchange-traded funds enjoyed eight straight weeks of net inflows to start the year, but since have seen two consecutive weeks of outflows, according to data from Lipper. Losses could continue if precedent holds.

"The tax-time softening in muni flows usually doesn't show up until the third week of March, at the earliest, so this year's fade in muni flows is a little ahead of schedule," Chris Mauro of RBC Capital Markets wrote in a client note on Friday.

COMPOUNDING THE SEASONAL weakness, last week saw troubling headlines for some high-profile municipal issuers. The Securities and Exchange Commission brought securities-fraud charges against Illinois for misleading bond investors about the extent of its pension-plan underfunding. California had to raise the yields it was offering on $2.1 billion in new state bonds amid lackluster institutional demand. Michigan appointed a bankruptcy lawyer to try to rescue Detroit from financial ruin, and Puerto Rico saw its credit rating cut again, to near-junk status, this time by Standard & Poor's, after Moody's did so in December.

Looking at exchange-traded funds, or ETFs, the
Shares S&P National AMT-Free Muni BondMUB -0.10170118343195267%iShares National Muni Bond ETFU.S.: NYSE Arca108.05
-0.11-0.10170118343195267%
/Date(1481248800002-0600)/
Volume (Delayed 15m)
:
1899921AFTER HOURS108.09
0.04000000000000620.03701989819527996%
Volume (Delayed 15m)
:
P/E Ratio
N/AMarket Cap
N/A
Dividend Yield
2.322546968995835% Rev. per Employee
N/AMore quote details and news »MUBinYour ValueYour ChangeShort position
fund (MUB) has followed a similar pattern. It registered a 2012 low of $107.50 on March 20 of last year, and subsequently rose by 3.4%, to $111.20 in early May. This year, it began March at $111.85, and was down 2.1%, to $109.79, as of Friday, marking its year-to-date low.

"We expect this period of price volatility to endure in the coming weeks, as the April 15 tax-filing deadline approaches and new-issue supply remains robust," Morgan Stanley Smith Barney analysts wrote on Friday. "The potential for a range-bound period may offer investors a window in which to shorten portfolio duration, while acquiring bonds at more compelling levels."

IF YOU'RE LOOKING TO BOOST muni returns by buying lower-rated bonds, bear in mind that you're not getting rewarded as much as you once were. This holds true across bond markets these days, as investors keep bidding up any high-yielding paper, with high-yield corporate bonds returning 2.57% year-to-date, compared with a 0.73% loss for their investment-grade counterparts.

In the muni market, the high-yield sector has likewise been the best performer, returning 1.68% so far this year, according to S&P Dow Jones Indices, versus 0.11% for the high-grade sector. Along the way, the relative spread of high-yield over investment-grade munis has fallen to 2.65 percentage points, the smallest difference since 2008.

Treasuries closed out a forgettable week with some welcome gains on Friday, the same day the Dow Jones Industrial Average saw its 10-day winning streak snapped. The 10-year note yield fell back below the 2% level on Friday, to 1.991%, down from 2.045% a week earlier.